Two-thirds of Americans live paycheck to paycheck, making it harder to pay their bills on time.
Why it matters
Late payments can affect credit scores and increase credit card balances, leading to even greater financial problems.
Many Americans struggle to make credit card payments on time, leading to thisthat can damage credit scores and . If you have financial problems, even pay them necessary could be difficult and possibly lead to a .
According to Bankrate, the average credit card balance for Americans is $5,221. And there is growing concern that many credit card bills will become overdue as borrowers default on payments. An August report by Pymnts and Lending Club suggests that 61% of Americans are living paycheck to paycheck.
If you’re struggling to make your credit card payments, we have a few options that can help you stay on your feet while trying to pay your bills. For more, here they are.
Call your credit card company and explain your situation
As soon as you find that you cannot make your minimum payment, contact your credit card company so they are aware of your situation. If the company is not aware of this, it could assume the worst and take action. Informing your credit card provider can help you avoid dire consequences and stay in control.
Your credit card company may be able to create a payment plan that you can afford. The lender could also push back the due date of your payment to make it work better with your paycheck. You may also be able to negotiate a lower APR – the annual interest you pay on your credit card balance.
Whatever you work out, get the details in writing. Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling, told CNET that if things turn out not to be the case, you should make sure you get official confirmation and terms from your credit card issuer for any changes to your account as you imagined.
The credit card issuer may also have relief or hardship programs (see below) that do less harm to your credit than if you default (an overdue account) or your account is debited, meaning it is written off as a loss and closed to future debits becomes . When this happens, your credit utilization rate increases, which can affect your credit score. It can also decrease your credit history, affecting your credit score.
There is always a credit counseling or debt management program
Another option for credit card debt help is to look for nonprofit credit agencies or debt management programs that can help with budgeting.
“A debt management program allows you to cost-effectively get back on track within your budget while also benefiting from reduced payments and interest rates until you pay off your accounts,” McClary explained. These programs can help you find a long-term solution with your creditors based on your budget and make payments more sustainable. They can also negotiate with creditors on your behalf to create a new payment plan.
Rod Griffin, senior director of consumer education at Experian, suggests contacting your attorney general’s office or the Consumer Financial Protection Bureau and checking Consumer.gov for all your local options.
Revise your budget and find places to save or earn more
If you’re encountering household problems that are making it difficult to pay your bills, consider cutting back on unnecessary monthly expenses and applying for government assistance. There are programs that can give you a grant to pay your energy bills – for example the Low Income Home Energy Assistance Program. States also offer rent assistance, as well as temporary assistance to needy families that helps with food, shelter, household energy, childcare, and job training.
Next, consider resigningor cable, limit shopping and return unnecessary recent purchases. Try to eat at home more often and eat less at restaurants and specialty coffee shops. If possible, work from home . You could also use a “pay as you go”. if you don’t drive often These small changes may not be enough to cover your bills depending on how much you owe, but the money you save can still add up in the long run.
Once you’ve determined your savings options, look for additional ways to make more money on the side. Search your storage closet for unwanted items andand list them for sale on apps like eBay, Mercari, and Poshmark. You could or sign up as an Uber or Lyft driver. You can also rent out your car when you don’t use it.
Transfer your balance to a 0% intro APR credit card
If your credit is still good enough—for example, you haven’t missed any payments yet—you should applycredit card and . You typically need a credit score of at least 670 to use one of these cards, but switching your credit card debt to a 0% intro APR card can save you time and money when trying to pay off credit card debt.
However, if you are already struggling financially and cannot make your current minimum payment, this may not be the best option for you as you will be expected to continue making payments with your new card during the introductory period. If you don’t do this, your 0% APR period may end early.
If you are unable to approve an introductory 0% APR and have multiple credit card balances, you should submit an application. Your debt will continue to earn interest, but you only have one payment to make and could get a lower interest rate overall.
Disadvantages of hardship programs
Although you won’t often see them advertised, many creditors offer hardship programs to help you pay off your credit card debt. Terms vary by lender, but may include options like skipping payments or reducing your minimum payment or APR. In general, you must apply for the program by contacting your creditor, but certain conditions may apply. For example, you may need to prove that you are in distress.
However, the programs have a few downsides that could hurt your credit score. Here’s what they are.
1. Paying off your debt for less than originally agreed
If you pay off your debt for less than you originally agreed — for example, if your original debt was $15,000 but you settled down to $10,000 — it could affect your credit score because you failed to meet your original obligation. On the other hand, McClary adds that while you’re focused on paying off your credit cards, you should prioritize paying off your debt over your creditworthiness — paying off your debt will have a much larger long-term effect than dealing with isolated credit components .
2. Issuers could lower your credit limit or close your account
The credit card company could reduce your credit limit or even close your account while you make payments, affecting your credit score. A lower credit limit would affect your credit usage ratio (the sum of your balances compared to your credit limits) – an important part of creditworthiness – as your total used balance will increase.
If your account is later closed, your average credit age (the length of all your accounts divided by the total number of accounts), another component of creditworthiness, goes down. Your credit utilization rate and length of credit history are two important factors in determining your creditworthiness.
3. Registration for a hardship program in general
Just signing up for a hardship plan could indirectly hurt your credit score, WalletHub analyst Jill Gonzalez told CNET. “Your credit card issuer may add a notice to your credit report that may alert other potential creditors to your financial problems.”
Because of the potential negative consequences of hardship programs, Griffin says it may be best to work through a good assistance program with a financial advisor instead.
More information can be found here. Also here is and how it hurts and helps your credit.
If you want to build your bad credit but need the tools, check out our recommendations for thoseand . Use these cards in conjunction with will help isolate your financial situation.